Help please, i'm so confused?

Question: Felix is an all equity financed firm with a market value of £21m and a beta of 1.1. Felix is presently considering opportunities. Project A and project B, both which require investment of £5m. With respect to both of these projects the returns will be received in perpetuity.

A
beta = 0.7
expected return net of corporation tax (ERNOCT) = 16%.

B
beta = 0.4
ERNOCT = 11%.

Financing of the project will be obtained by raising new risk free debt.

Return on the market portfolio is given as 18% and return on the risk free security = 8%. Assume that the capital market is in equilibrium. Corporation tax = 35%.

1.Advise Felix plc which of the two projects it should accept. Fully explain your answer.

2.Based upon your choice (i) calculate the new value of Felix plc once the better project has been accepted and financed in the way suggested.

3.Calculate the new cost of equity of Felix once the better project is accepted. By how much has the cost of equity increased?

Answer:
Trying to get someone to do your homework for you? You really need to crack the books and work this problem out for yourself. It isn't difficult, but why go to school if you're going to try to cheat your way through?

---

More Questions & Answers...

I am able to save $1000 a month. I would like to invest that money. What would be the best choice for me?

What should i do with the rest of my life?

How do I invest in gold?

Should i invest in gold?

The gain or loss that results from an investment over a specified period of time is known as what?

Help please, i'm so confused?

You just won the lottery...?

How can i become a small, free risk investor for commerical real estate- shopping malls and offices?